Venezuela car industry slips into idle

Feb. 13, 2014
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Newspaper workers take part in a protest in Caracas on Feb. 11. About 500 newspaper workers demanded the government relax restrictions on access to U.S. dollars to buy newsprint, which suppliers refuse to sell because of the government's currency manipulation. / Juan Barreto, AFP/Getty Images

by Peter Wilson, Special for USA TODAY

by Peter Wilson, Special for USA TODAY

CARACAS, Venezuela - Leonardo Hernandez had hoped to buy a new car this year, ending nearly two years of waiting on various lists at different dealerships throughout the country.

Those hopes were dashed last week when Toyota Motor Co. said it would shut down its assembly operations in Venezuela due to the government's foreign exchange controls that have crippled imports and made it impossible to bring in parts needed to build its vehicles.

The country's other car manufacturers, including General Motors and Ford, haven't even started operations this year, while waiting for needed parts to arrive.

"I desperately need a new car for work,'' said Hernandez, who works as a salesman. "I have been waiting and waiting, and now this. I have no idea what I am going to do. And I can't even find spare parts for the old car I have."

Toyota joins a long list of companies saying they are having to curtail or stop operations in the South American country thanks to the government's foreign exchange regime, which the late President Hugo Chavez created in 2003 to fight capital outflow.

International airlines are refusing to sell tickets in bolivars, or the local currency, saying the government owes them $3 billion from sales last year. Empresas Polar, the country's largest food processor, has already warned that it may have to shut some operations as it owes its overseas suppliers nearly half a billion dollars.

Newspapers throughout the country are running out of newsprint, and there are shortages of foodstuffs and medicines. The shortages prompted protests this week against the government. On Wednesday, protests ended in violence when three people were killed by masked men on motorcycles, according to demonstrators.

Business associations estimate that Venezuelan companies owe their international suppliers upward of $14 billion to cover past purchases. Many suppliers are now cutting off credit, tired of waiting for payment.

And for Venezuela, which has the world's largest oil reserves but imports about 70% of the goods it consumes, the results are catastrophic.

"We're seeing a selective default,'' said Cesar Aristimuno , an economist with Caracas-based Banca y Negocios. "There is a shortage of dollars, which is affecting the economy and is extremely worrying."

Venezuela's automotive industry was once the continent's third-largest, following only those in Brazil and Argentina. Venezuela's car manufacturers built 172,418 vehicles in 2007. Last year, the number was just 72,000.

The number of models being assembled fell to 42 from 85 in 2007. Installed production capacity is 250,000 vehicles a year.

Sales of all new vehicles have also cratered from nearly half a million in 2007 to around 100,000 last year.

And according to Venezuela's Automotive Chamber, sales of new vehicles fell 85% last month to 296, the lowest since 2003 when the country was in the grips of a nationwide strike against Chavez. Industry officials say the car manufacturers owe more than $1.5 billion to overseas suppliers.

Enrique Gonzalez, who heads the country's automotive chamber, has been warning since 2009 that a shortage of foreign currency was hurting operations of its members.

Gonzalez didn't return calls seeking comment. Calls to the local operations of Toyota, Ford and General Motors also weren't returned.

Toyota said in a press statement that it will close its plant in Cumana in the eastern state of Sucre on Feb. 13, idling 1,300 workers, and affecting an additional 1,500 indirect jobs. The plant accounts for about half of Sucre's overall economic output, and built nearly 9,500 vehicles last year

Toyota isn't alone.

"Our inventories are about 30% of what they should be,'' said Bruno Louis, who heads the parts department at the Volkswagen dealership in La Victoria, a city in the industrial state of Aragua. "The head office asked us earlier to estimate what we need in spare parts this year but we have no idea what is going to occur."

The dealership had 150 new vehicles a month when it opened its doors in 2008. Since then sales have steadily declined to zero as Volkswagen hasn't received permission to import new vehicles to sell.

VW doesn't have a plant in Venezuela and imports its vehicles from Brazil.

"VW finally imported some vehicles late last year but they were all destined for a ministry,'' Louis said. "We have received no cars to sell to the public for years."

The crisis hitting Venezuela's car industry is occurring even though Venezuelan President Nicolas Maduro has declared it a priority for the country. After Toyota announced its decision, Maduro demanded in a nationwide televised address that the Japanese car manufacturer explain its decision.

Maduro, who has repeatedly accused companies of waging an economic war against his government and the country's socialist revolution, warned that he would take harsh measures against those who defy him.

He earlier decreed a law setting profit margins at 30% for all companies operating in the country, and has promised to mandate reductions in the prices of new and used cars.

"Don't underestimate me, bourgeoisie," Maduro said. "If I have to take over companies, I will."

Some Venezuelans try to buy cars as a hedge against the weakening bolivar. Venezuela's official exchange rate is 6.3 bolivars to the dollar but that rate can only be accessed by companies importing foodstuffs and medicine. A second rate of 11.4 bolivars to the dollar is used for most other goods, while the black market rate is 82 bolivars to the dollar.

For Hernandez, Maduro's promises ring hollow.

"I guess I shouldn't be surprised that there are no cars to buy,'' he said. "I can't find milk or toilet paper, either."